How significant is the Amazon-Souq.com deal?

It is hailed as a pivotal moment for Middle Eastern consumers but the broader impact on the entire entrepreneurship sector will be the real determining factor
A family Souq.com’s sale is expected to ignire an e-commerce boom.
By Courtney Trenwith
Mon 28 Aug 2017 02:29 PM

Amazon’s acquisition of Souq.com is historical for the Arab region. It spells a new era in e-commerce and is a valuable injection of sentiment into the entire entrepreneurship landscape in the Middle East.

For years, GCC money has been flowing outwards, with sovereign wealth funds and venture capitalists alike investing in foreign technology and information firms from start-ups to the powerhouses of Apple and Uber. Saudi Arabia’s partnership with Japan’s SoftBank to create the largest private equity firm in the world has raised $93bn, including from Abu Dhabi’s Mubadala, but so far no Arab tech firm has caught its eye.

The Souq.com acquisition, therefore, is arguably the most significant redirection of such investment.

However, the real historical significance of the $580m deal will be determined over the next few years as the impact of Amazon’s presence in the region unfolds. The wider the reverberations, the greater the significance.

The $475bn giant’s entrance into the Middle East is somewhat of a tick of approval for the region’s e-commerce scene and many are hoping it will ignite growth in not only online retail but also related sectors such as logistics and payment systems.

There is little doubt that online retail in the Middle East will boom in the near future. It currently accounts for just 2 percent of total retail, compared to about 9 percent in the US and 15 percent in China.

While major cities such as Dubai and Jeddah sport sprawling malls that attract millions of visitors annually, the majority of the Arab population lives in more remote locations, where there are fewer shops and certainly fewer malls, and far less selection of brands and products.

Coupled with the region’s above-average youth population and mobile penetration and it is difficult to argue that e-commerce will have a hard time expanding.

But putting aside the benefits to Souq.com, Amazon’s entrance into the region will hopefully signal a new impetus in start-up funding in the Middle East. That will be the real litmus test for judging the significance of the Amazon-Souq deal.

Funding at the early and growth stages is particularly crucial. There is already a noticeable increase in funding — from institutions, banks and private funds — but investors need to become less risk-averse if this region’s entrepreneurship goals are to be achieved.

Amazon’s purchase is hardly high risk but it serves to raise sentiment.

There are already several tech businesses in line to become the next unicorn of the Arab world. Their success in gaining funding may be boosted by the recent positive attention from one of the world’s biggest internet businesses. Perhaps, the quicker they move the more easily they will be able to ride the wave.

New start-ups are also likely to be buoyed by the Souq.com sale. There is nothing like a half-a-billion-dollar carrot to bolster confidence and determination, while it also proves that “making it big” really can happen in this part of the world.

So while we wait to see the full roll out of Amazon’s plans in the Middle East, we should also be watching the blooming businesses coming up alongside. It is this wider impact on entrepreneurship that will really determine the significance of the Amazon-Souq deal for the entire region.

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